Appraisal came in at 235k, Under contract for 277k. Buyer here! HELP!

Detroit, Michigan
Buying & Selling Real Estate
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Appraisal came in at 235k, Under contract for 277k. Buyer here! HELP!

Atampreet Singh
Member since 2019 · 15 posts · 6 votes

Hello all,

I am under contract on a 4 bed 2 bath home in one of the nicer suburbs of Detroit, Auburn Hills. 

I am under contract with seller right now for 277k with 8k in seller credits negotiated upon inspection.  

Now, somehow, appraisal has come in at 235k.

Since, this house has a lot of earning potential for me as a mid term rental airbnb. I would like the deal to not fall through 

Seller has sent in writing a counter for 250k with no concessions, and has asked me to sign mutual release if I don't accept. 

Any thoughts from experienced investors? 

how would you go about negotiating price or buying with sellers terms as is? 

2Reply
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3y

@Atampreet Singh given the market is not increasing anymore, what do you have to lose by walking away?

You can check back on the property in a month and it it's still there, make another offer.

REMEMBER - investors make their money when they buy!

[email protected]248-209-6824
Logical Property Management4.9460 Reviews
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  • Madeline Lamour
    portland , ME · Member since 2017 · 10 posts · 12 votes
    3y

    Does the price at 250000 still make sense for you? Do the numbers still work? If they do and you can afford it, then 250 is a possibility if you really want this property.

    now, you can make your own offer explaining the situation. We just did that for our primary. We explained matter of fact that we do not feel comfortable offering that much above appraisal price (under contract for 425, appraisal was 355!!!) Because 1. The current market and a potential recession and 2. The bank only financing 70% of appraisal price, paying that much would wipe out all savings and we still needed to renovate the place. So we counter offered with 370, still above market but way under asking, as that was something we could afford and would leave us some reserve. Then we prayed they would accept. They did because they wanted to sell and they knew other potential buyers would also balked at the appraisal vs asking price. 

    so if you feel like gambling a little, write a nice letter explaining your thinking and ask for something you can afford. 

    If you really really want it, then accept 250.

    Remember, the other side is also gambling.

    7Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @Atampreet Singh given the market is not increasing anymore, what do you have to lose by walking away?

    You can check back on the property in a month and it it's still there, make another offer.

    REMEMBER - investors make their money when they buy!

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
    WebsiteView Page
    12Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Are you willing to come up with the rest of the cash to close on this property? Your lender will not give you a penny more than what it appraised at. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    If you're using conventional financing, just switch lenders so you can get a new appraisal

    [email protected]301-893-4635Podcast Guest on Show #192
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    6Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    3y

    Good advice here already. We're going to start seeing this a lot over the next year or so. Up until now, appraisals (looking back 6-9 months) have supported prices from 6-9 months ago. Not anymore. 

    Pretty soon, 6-9 months ago will reflect last Fall, when interest rates spiked and sales stalled. 

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    5Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y

    Seller is pretty good offering you 250k. For me it's just matter of "comps". 

    1Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Quote from @Russell Brazil:

    If you're using conventional financing, just switch lenders so you can get a new appraisal

    Thanks for the input, I work with a mortgage broker so I can try to talk to him tomorrow.  
    I am told that I have to notify / get permission from seller if I want to switch lenders this late in the process. Closing date is set to March 8th. I do have the cash to bridge the gap so we already accepted the 250k counter. 
    Question is: do I just ask same appraiser to reconsider value?



    1Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Quote from @Jeff Copeland:

    Good advice here already. We're going to start seeing this a lot over the next year or so. Up until now, appraisals (looking back 6-9 months) have supported prices from 6-9 months ago. Not anymore. 

    Pretty soon, 6-9 months ago will reflect last Fall, when interest rates spiked and sales stalled. 

    The thing is if I wait and don't find a layout like this for another 5 months, I would have lost about 20k in earnings. So based on that I decided to accept the 250k paying 15k over appraised. 

    Any follow up thoughts? I am thinking I ll be able to get it refinanced in a year or so when rates go down. 

    3Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Quote from @Eliott Elias:

    Are you willing to come up with the rest of the cash to close on this property? Your lender will not give you a penny more than what it appraised at. 

    Yes, have the funds to cover the gap but I am going to appeal the appraisal. 

    0Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Quote from @Drew Sygit:

    @Atampreet Singh given the market is not increasing anymore, what do you have to lose by walking away?

    You can check back on the property in a month and it it's still there, make another offer.

    REMEMBER - investors make their money when they buy!


    0Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    3y
    Quote from @Atampreet Singh:
    Quote from @Jeff Copeland:

    Good advice here already. We're going to start seeing this a lot over the next year or so. Up until now, appraisals (looking back 6-9 months) have supported prices from 6-9 months ago. Not anymore. 

    Pretty soon, 6-9 months ago will reflect last Fall, when interest rates spiked and sales stalled. 

    The thing is if I wait and don't find a layout like this for another 5 months, I would have lost about 20k in earnings. So based on that I decided to accept the 250k paying 15k over appraised. 

    Any follow up thoughts? I am thinking I ll be able to get it refinanced in a year or so when rates go down. 

    If the deal works, the deal works.

    Like you said there's always an opportunity cost to doing nothing. And if it's a long-term hold, a short-term dip in resale prices is actually pretty meaningless. 
    Copeland Morgan LLC4.770 Reviews
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    2Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Hi Drew, 

    The layout of the house and location works for what I intend to do with this property. So, not knowing when I ll find a 5 bed 2 bath house that is almost turnkey is the reason i accepted the 250k. 

    And the house is on a double lot with 30 x 30 pole barn detached garage that i intend to turn into a separate dwelling one day. 


    Quote from @Atampreet Singh:
    Quote from @Drew Sygit:

    @Atampreet Singh given the market is not increasing anymore, what do you have to lose by walking away?

    You can check back on the property in a month and it it's still there, make another offer.

    REMEMBER - investors make their money when they buy!



    0Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    Thanks for your comment, I tried to counter at 245k but seller was firm as they had a cash offer for 250k from a friend and they asked me to take it or leave it. So I took it for 250k. :) 

    Fingers crossed!!! Hoping it's a good buy. If not, I ll just buy 3 more houses at lower price later this year to average down. 


    Quote from @Madeline Lamour:

    Does the price at 250000 still make sense for you? Do the numbers still work? If they do and you can afford it, then 250 is a possibility if you really want this property.

    now, you can make your own offer explaining the situation. We just did that for our primary. We explained matter of fact that we do not feel comfortable offering that much above appraisal price (under contract for 425, appraisal was 355!!!) Because 1. The current market and a potential recession and 2. The bank only financing 70% of appraisal price, paying that much would wipe out all savings and we still needed to renovate the place. So we counter offered with 370, still above market but way under asking, as that was something we could afford and would leave us some reserve. Then we prayed they would accept. They did because they wanted to sell and they knew other potential buyers would also balked at the appraisal vs asking price. 

    so if you feel like gambling a little, write a nice letter explaining your thinking and ask for something you can afford. 

    If you really really want it, then accept 250.

    Remember, the other side is also gambling.


    0Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y



    hi Jeff, 

    Yes, it was a big shock to see appraisal come in so low. I am taking this one because I know we ll cash flow about 40 percent cash on cash return at minimum so. . 





    uote from @Jeff Copeland:

    Good advice here already. We're going to start seeing this a lot over the next year or so. Up until now, appraisals (looking back 6-9 months) have supported prices from 6-9 months ago. Not anymore. 

    Pretty soon, 6-9 months ago will reflect last Fall, when interest rates spiked and sales stalled. 


    0Reply
  • Zane Cress
    Realtor · Athens, GA · Member since 2023 · 201 posts · 104 votes
    3y

    I think 250k is a fair price in the middle, as long as your numbers still work and the deal cash flows. Assuming you plan to hold it for a few years at least then your equity should be safe. Good luck!

    2Reply
  • Atampreet Singh
    OP
    Member since 2019 · 15 posts · 6 votes
    3y
    I tried to gamble with 245k but they were adamant to stick with 250k so I went with it. 
    After talking to multiple investor friends everyone suggested to take the deal because appraisal is just temporary in this case. So.   

    Thanks for your reply though. This was my first bigger pockets forum post. Pretty excited to see some responses. 


    Quote from @Madeline Lamour:

    Does the price at 250000 still make sense for you? Do the numbers still work? If they do and you can afford it, then 250 is a possibility if you really want this property.

    now, you can make your own offer explaining the situation. We just did that for our primary. We explained matter of fact that we do not feel comfortable offering that much above appraisal price (under contract for 425, appraisal was 355!!!) Because 1. The current market and a potential recession and 2. The bank only financing 70% of appraisal price, paying that much would wipe out all savings and we still needed to renovate the place. So we counter offered with 370, still above market but way under asking, as that was something we could afford and would leave us some reserve. Then we prayed they would accept. They did because they wanted to sell and they knew other potential buyers would also balked at the appraisal vs asking price. 

    so if you feel like gambling a little, write a nice letter explaining your thinking and ask for something you can afford. 

    If you really really want it, then accept 250.

    Remember, the other side is also gambling.


    0Reply
  • Maurice J.
    Investor · Otsego, MN · Member since 2014 · 45 posts · 29 votes
    3y

    If you plan to keep as a rental I agree you should move forward, 5-10 years from now you won’t remember what you paid for it, only that it has appreciated and you have a nice equity position. Cheers! 

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Atampreet Singh:
    Thanks for your comment, I tried to counter at 245k but seller was firm as they had a cash offer for 250k from a friend and they asked me to take it or leave it. So I took it for 250k. :) 

    Fingers crossed!!! Hoping it's a good buy. If not, I ll just buy 3 more houses at lower price later this year to average down. 


    Quote from @Madeline Lamour:

    Does the price at 250000 still make sense for you? Do the numbers still work? If they do and you can afford it, then 250 is a possibility if you really want this property.

    now, you can make your own offer explaining the situation. We just did that for our primary. We explained matter of fact that we do not feel comfortable offering that much above appraisal price (under contract for 425, appraisal was 355!!!) Because 1. The current market and a potential recession and 2. The bank only financing 70% of appraisal price, paying that much would wipe out all savings and we still needed to renovate the place. So we counter offered with 370, still above market but way under asking, as that was something we could afford and would leave us some reserve. Then we prayed they would accept. They did because they wanted to sell and they knew other potential buyers would also balked at the appraisal vs asking price. 

    so if you feel like gambling a little, write a nice letter explaining your thinking and ask for something you can afford. 

    If you really really want it, then accept 250.

    Remember, the other side is also gambling.

     >I tried to counter at 245k but seller was firm as they had a cash offer for 250k from a friend and they asked me to take it or leave it. So I took it for 250k. :)

    Do you really believe they had an all cash offer at $250k from a friend but accepted your $250k offer?  I have a bridge in Brooklyn to sell you cheap.  Seriously.

    You have a falling market with higher rates.  You have an independent qualified appraiser provide you retail price.  As an RE investor, I seek to pay under retail.  I do not understand knowingly paying over retail.

    I do not understand the decision to knowingly pay over retail, especially in the current market.

    Good luck

    1Reply
  • Michael Hutchinson
    Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Atampreet Singh:
    Quote from @Russell Brazil:

    If you're using conventional financing, just switch lenders so you can get a new appraisal

    Thanks for the input, I work with a mortgage broker so I can try to talk to him tomorrow.  
    I am told that I have to notify / get permission from seller if I want to switch lenders this late in the process. Closing date is set to March 8th. I do have the cash to bridge the gap so we already accepted the 250k counter. 
    Question is: do I just ask same appraiser to reconsider value?




     As a lender, you can ask your lender to push appraiser for a reconciliation of value.  The lender has to work with the realtor to determine an argument as to why the appraiser is wrong.  If you make a good argument, you can pull up the appraisal assuming the appraiser is not a jerk.   Things I look for if I am going to argue the appraisal:

    - Find better comps. Generally, in my area, the appraisers try to look within 1 mile and over the past 3 months for sales. If there is something unique about the property, you can push them to expand this limit and/or if you get a better comp that is just outside of the range. An example of reasons I have broadened the date or distance range included: Basement vs no basement, ranch vs 2 story property, maybe mine had an ADU vs the other comps didn't and finally I added some value once because of a small body of water.

    - Did they get the measurements right?  Sometimes you can find conflicting measurements if the seller measured first.

    - Past appraisals - Sometimes the seller has already had it appraised or there were past deals where it appraised higher.   Could be a source of comps there.

    - Distance to comps - Some appraisers use map programs and they measure distance by drive time.  I had one where it was about 300 yards away, but through the woods and over a creek.  They claimed my comp was 1.2 miles away and I showed it on google maps to be just yards away.

    Be creative and use your lender/realtor if you have good ones. 

    3Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y
    Quote from @Atampreet Singh:

    Hello all,

    I am under contract on a 4 bed 2 bath home in one of the nicer suburbs of Detroit, Auburn Hills. 

    I am under contract with seller right now for 277k with 8k in seller credits negotiated upon inspection.  

    Now, somehow, appraisal has come in at 235k.

    Since, this house has a lot of earning potential for me as a mid term rental airbnb. I would like the deal to not fall through 

    Seller has sent in writing a counter for 250k with no concessions, and has asked me to sign mutual release if I don't accept. 

    Any thoughts from experienced investors? 

    how would you go about negotiating price or buying with sellers terms as is? 

    Its all about the numbers, if they work then close, if not walk away


    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @Atampreet Singh Recommend looking into rentlng out the pole barn separately. 

    There are a lot of contractors, car collectors, etc. that will be interested. Just make sure you have a tight lease that requires them not to store anything outside (so it doesn't look like a junkyard) and they don't interfere with STR guests.

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
    WebsiteView Page
    2Reply
  • Chris Barnhill
    Member since 2020 · 8 posts · 2 votes
    3y
    Quote from @Atampreet Singh:

    Hello all,

    I am under contract on a 4 bed 2 bath home in one of the nicer suburbs of Detroit, Auburn Hills. 

    I am under contract with seller right now for 277k with 8k in seller credits negotiated upon inspection.  

    Now, somehow, appraisal has come in at 235k.

    Since, this house has a lot of earning potential for me as a mid term rental airbnb. I would like the deal to not fall through 

    Seller has sent in writing a counter for 250k with no concessions, and has asked me to sign mutual release if I don't accept. 

    Any thoughts from experienced investors? 

    how would you go about negotiating price or buying with sellers terms as is? 

    If the numbers made since at the $277,000 price then you should be even better off at the $250,000 sales price. Buy it and hopefully interest rates will come down in a couple years and refinance then cash out on the equity.


    0Reply
  • Derek Caffe
    Real Estate Broker · Austell, GA · Member since 2013 · 73 posts · 24 votes
    3y

    See if the seller will carry the difference. Your appraisal came in at $235K, and seller is asking $15K over? That $15K can be seller financed at terms that still makes sense for both parties. I don't know expected return or cashflow on the property as a mid-term rental, but you can run your numbers and see what you're willing to sacrifice in cashflow to pay off the seller financed portion.

    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    I would walk away from this.

    1Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    3y

    You have nothing to lose by just send over a counter to seller for the appraisal price.  Worst case scenario they say no and you take the 250K.  

    1Reply
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